All You need to know about Ethereum Classic
Ethereum Classic was born from one of the most debated controversies in the world of cryptocurrency. This was both an ethical and ideological struggle which split the community into two fronts. To understand how Ethereum Classic came to be, it is necessary to understand the circumstances surrounding its creation.
The DAO
For those who don’t know, the Ethereum system operates by the use of smart contracts. A smart contract is the automated enforcement of the terms of an agreement. The DAO – Decentralised Autonomous Organisation – was an incredibly complex smart contract built over the Ethereum network, which was about to bring a new revolution to the financial sector.
The DAO itself was designed to be an innovative decentralized investment fund that was going to be the centerpiece of the decentralized management for a whole lot of DApps (Decentralised applications) that would be developed in the Ethereum ecosystem and would be funded by the DAO.
The way the, DAO worked, and was something unique. Anyone wanting to have a voice on how the development of a particular project funded by the DAO should be conducted had to buy DAO Tokens. This would give you access to vote and deliberate on the way the plans should be heading as well as it was an indication that the user was officially part of the DAO community. In case a DAO proposal got at least 20% approval rate, then the required funds to kickstart the project would be released.
On the other hand, if a user didn’t vote for a specific DApp that was approved for funding, they would be able to call for a split (Split Function) and take its tokens out or assign them on to another DAO or Child DAO and may even start accepting new proposals. With this technique, investors would always be in complete control of their investments and could step out or re-allocate funds anytime. However, to do so, the investor requesting the split would have to wait for 28 days to be able to regain full control over their tokens. Then, they would be able to withdraw the funds or re-allocate them onto a new DAO.
The features the DAO was introducing were both a novelty and unprecedented in the history of finance. The project was so sought after that 28 days after its formation, it raised more than $150 million in ether. It was able to gather about 14% of the total Ethereum tokens issued up to that date.
The system looked perfect and the process seemed simple, but it had a fatal flaw. Experts in the community saw a loophole in the splitting process and promptly warned the developers about a possible attack vector. The team behind the DAO assured that this wouldn’t be a problem. Unfortunately, this loophole resulted in a significant heist that started the discussion that led to the Ethereum split and the birth of Ethereum Classic.
The ‘Hack’
Someone managed to exploit the loophole and locked one-third of the total DAO funds (which was around 50 million) onto his/her own Child DAO and made the split request.
The hack was pretty ingenious indeed and followed all the rules implicit in the DAO protocol itself. At the time, many people in the community didn’t even consider this as a hack. But right after the Splitting request, the function needed to go through 2 steps: to give back the users Tokens or the Ether in exchange, and register the transaction in the blockchain thus updating the DAO’s internal token balance. The attacker was able to tamper with this process which gave him the ability to replicate the process over and over until $50 million worth of ether were withdrawn from the DAO onto the Child DAO.
The Aftermath of The Hack
The events led the price of ether to abruptly fall from $20 to $13 in a matter of hours. After the hack, an intense debate began. While many community members were relentlessly pointing fingers and blaming Ethereum for the problem, others were trying to find a way to fix the issue and prevent the hacker from getting his hands on the stash before the splitting period came to an end .
The community was committed to solving the issue, and three viable options were presented:
- Take no action
- Implement a Hard fork
- Implement a Softfork
On the other hand, if nothing was done, the hack couldn’t be reversed. This would be the best case for the hacker.
Soft Fork vs Hard Fork and the birth of Ethereum Classic
The main distinction between a soft fork and a hard fork is that it doesn’t allow older versions to be recognized by newer versions. If a blockchain needs an update, there are only two ways of implementing it: a soft or a hard fork. While a soft fork is backwards compatible, a Hard fork is not. This means that you cannot open files that were initially stored in an older version with a recent version.
This meant that a soft fork wouldn’t solve the problem and a hard fork would be the only viable option. The community then decided to go for the hard fork and reverse all the transactions up to the point before the hack started. Once the hard fork was implemented, the blockchain followed a new path. That was not all. The blockchain "puritans" kept the original blockchain!
After the community's decision of going for a hard fork, users that didn’t agree with the hard fork decided to maintain the original chain. Hence, Ethereum Classic aka ETC was born. Today, the total market cap for ETC is about $1.5 billion and is far below that of Ethereum according to coinmarketcap
The Philosophical debate
The Ethereum split was indeed a controversial debate, as it represented a rupture of the immutability rule. Even though the Ethereum founders, Gavin Wood and Vitalik Buterin, as well as many other important figures of the community, switched onto a new chain, many others decided to keep the old chain and made it backwards incompatible. This decision was set upon the blockchain technology's original principles, which meant that a blockchain's immutability should be conserved. This was the golden rule that prohibited human intervention or tampering with the blockchain. While the majority of the community was willing to break this premise to prevent the hacker getting away with the heist, this was going against everything cryptocurrency stood for. Nevertheless, it was a democratic decision, and while it could be considered as an “anti-measure”, it was the majority decision.
But for puritans such as Grayscale’s CEO Barry Silbert, this wasn’t the right decision, so it was decided that a split should be made, even if it meant that the hacker would keep their coins but at least the whole purpose of the blockchain wouldn’t be overridden in the first place.
ETC Pros and Cons
Even though it appears the dispute is now settled, many people believe that Ethereum Classic is the original Ethereum, while others say it is a direct attack on Ethereum itself. After all, the struggle is still pretty much alive.
The central issue with ETC is that it is not compatible with the Ethereum Hard Fork. The most important members of the community have all migrated to the new chain and ETC will not be able to access futures updates done by Ethereum and remains immutable. Let’s check what the ETC Pros and Cons are:
Pros
- Follows the “code is law” rule
- Sticks with the immutability of the blockchain
- Has the backing of prominent players
Cons
- Cannot access updates (e.g. cannot move from POW to POS).
- The founders of Ethereum migrated to the new chain.
- Seen as an attack and an insult to the community.
If you liked this article, check out our magazine and this article as well!
Posted from my blog with SteemPress : https://cryptocoremedia.com/ethereum-classic-2/
Good description, I have also written an article about some famous hacks https://steemit.com/blockchain/@marcovugts/smart-contract-mistakes-the-downside-to-immutability
But this one is obviously the one with the most impact
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